From RBI’s costly fire-fighting to BRICS’ new rails, the case for currency choice is now too compelling to ignore.
By Ravishankar Kalyanasundaram
When Donald Trump threatened sweeping tariffs of up to 50 per cent on countries he branded “unfair traders,” the world took notice. But the real signal was not just about trade policy. It was about power — the power of a nation that controls both the world’s largest consumer market and the currency in which almost all global commerce is conducted.
This is the essence of the dollar trap. Tariffs are levied in dollars, sanctions are enforced through dollar-based banks, and financial storms are magnified by the dollar’s dominance. For emerging economies like India, the consequence is simple: even if we are not the direct target, we feel the shock waves in every invoice, every oil shipment, and every export contract.
The costly defence of the rupee
India has lived this reality time and again. Each time the dollar rises, the rupee weakens, oil becomes costlier, and the Reserve Bank of India (RBI) is forced into fire-fighting mode. The numbers tell their own story.
In October 2024, the RBI sold an extraordinary $44.5 billion to stabilise the rupee. Between June and December 2024, net dollar sales topped $36 billion. And in just two weeks of August 2025, another $5–6 billion was spent offshore to hold the line. These interventions work in the moment, but they come at the cost of shrinking reserves — money that could otherwise fund growth or cushion real trade flows.
India is not alone. From Turkey to Argentina, countries have seen their economies buckle under dollar pressure. Closer home, Sri Lanka’s 2022 meltdown was aggravated by the simple fact that its reserves ran out of dollars to pay for fuel and medicines. The lesson is harsh but clear: in a dollar-only world, every external shock hits twice — once through trade, and again through the currency in which that trade is priced.
The world is moving
The dollar will remain dominant, but it is no longer without challengers. Russia, locked out of Western finance, now settles much of its oil trade with China in yuan. Beijing is promoting the digital yuan as a settlement currency across Asia. The UAE has signed agreements with India to settle trade in rupees and dirhams, even linking UPI for small exporters.
And at the political level, the BRICS grouping — now enlarged to include Gulf and African economies — has openly discussed new settlement systems and even a shared currency unit. Progress is uneven, but the intent is unmistakable: nations do not want to be hostage to the dollar in an era of sanctions, tariffs, and financial volatility.
What India has begun
India has started to move. Special rupee accounts (SRVAs) are open in banks across thirty countries. Some Russian oil is already paid for in dirhams, and occasionally in yuan. Our inclusion in JPMorgan and Bloomberg global bond indices is drawing more international investors into rupee assets, improving liquidity and credibility.
These are important steps, but modest ones. The reality is that most exporters still invoice in dollars, and global commodities remain anchored to Brent and WTI benchmarks. The rails are there, but the trains are only just beginning to run.
What India should do next
If India wants resilience rather than dependence, it must go further — not in rhetoric, but in practice.
Europe and Japan: natural partners
India does not have to walk this road alone. Europe and Japan, though close allies of the United States, have long lived with discomfort over the dollar’s dominance.
Europe still recalls Charles de Gaulle’s complaint about America’s “exorbitant privilege.” The euro was meant to offer balance, yet most of Europe’s energy still arrives in dollar invoices. The 2022 energy crisis, when the euro fell below parity, was a sobering reminder of that dependence.
Japan faces a different bind. Its energy import bill balloons whenever the dollar surges, straining an economy accustomed to near-zero interest rates. Tokyo has maintained a $75 billion swap line with India, and Japanese agencies regularly lend in yen for infrastructure here. Some Japanese firms already use yen financing locally, sidestepping dollar exposure.
Together, Europe and Japan could make practical common cause with India: promote euro and yen invoicing in machinery and technology trade, expand swap lines with the RBI, and link their upcoming digital euro and digital yen to India’s e-rupee pilots.
The gains for India
The benefits are tangible.
This is not about abandoning the dollar. It is about ensuring that India has choice — the ability to trade in multiple currencies without being forced into one.
The bigger picture
The dollar is not about to vanish. It will remain the anchor of global finance for years to come. But as Russia, China, the Gulf, Europe and Japan build their own alternatives, India must not be a passive bystander. A nation of our size cannot afford to be hostage to a single currency’s moods.
The real question is whether we build our own bridges — in rupees, dirhams, euros, yen and digital rails — before the next shock arrives.
Because when the dollar pipes, the world may still dance. But India should be able to choose its own tune.
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